Recognizing the shared ownership of subsurface resource pools.

Author:Gerhart, Peter M.
Position:I. Correcting the Conventional Views of the Law of Subsurface Resource Pools C. Responses to the Migratory Nature of Subsurface Resource Pools: Malicious Interference, Waste, and Unreasonable Exploitation 3. Unreasonable Exploitation of Subsurface Resource Pools through Conclusion, with footnotes, p. 1068-1100 - The Law and Policy of Hydraulic ...
 
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For example, in Manufacturers' Gas & Oil Co. v. Indiana Natural Gas & Oil Co., suppliers and end users of natural gas withdrawn from a large reservoir sought to enjoin the Indiana Natural Gas & Oil from "using devices for pumping, and from employing any other artificial process or appliance for the purpose, or having the effect of, increasing the natural flow of gas" flowing out of the reservoir through its many wells. (76) Before this case, there was some indication such an action would not be recognized in Indiana. (77) The trial court dismissed the action and the court of appeals affirmed. (78) The Indiana Supreme Court reversed and held unreasonable exploitation is actionable:

Natural gas is a fluid mineral substance, subterraneous in its origin and location. ... [T]here are reasons why the right to protect it from entire destruction while in the ground should be exercised by the owners of the land who are interested in the common reservoir. ... [T]his right ought to reside somewhere, and we are of the opinion that it is held, and may be exercised, by the owners of the land, as well as by the state. Natural gas in the ground is so far the subject of property rights in the owners of the superincumbent lands, that while each of them has the right to bore or mine for it on his own land, and to use such portion of it as, when left to the natural laws of flowage, may rise in the wells of such owner and into his pipes, no one of the owners of such lands has the right, without the consent of all the other owners, to induce an unnatural flow into or through his own wells, or to do any act with reference to the common reservoir, and the body of gas therein, injurious to, or calculated to destroy, it. In the case of lakes or flowing streams, it cannot be said that any particular part or quantity or proportion of the water in them belongs to any particular land or riparian owner; each having an equal right to take what reasonable quantity he will for his own use. But the limitation is upon the manner of taking. So, in the case of natural gas, the manner of taking must be reasonable, and not injurious to or destructive of the common source from which the gas is drawn. ... [O]ne common owner of the gas in the common reservoir cannot devest all the others of their rights without wrongdoing. ... [T]he common owners of the gas in the common reservoir, separately or together, have the right to enjoin any and all acts of another owner which will materially injure, or which will involve the destruction of, the property in the common fund, or supply of gas. ... There is something in the nature of unity in their possession of the gas in the reservoir. ... The facts stated in the complaint constitute a cause of action. ... (79) The Indiana Supreme Court's recognition of a cause of action for unreasonable exploitation was grounded in its observation that the surface owners have a "unity in their possession of the gas in the reservoir" because of the migratory nature of subsurface natural gas. (80) Because the cause of action focused on the "manner of taking," it addressed activities that were not hidden (and that did not, for that reason, escape judicial scrutiny), and a court could assess the reasonableness of their impact on the shared resource. (81)

In Forbell v. City of New York, New York City had installed a water pumping plant that it knew would drain a significant amount of water from under areas outside the city. (82) The New York Court of Appeals held this unreasonable exploitation of the subsurface water actionable:

In the cases in which the lawfulness of interference with percolating waters has been upheld, either the reasonableness of the acts resulting in the interference, or the unreasonableness of imposing an unnecessary restriction upon the owner's dominion of his own land, has been recognized. In the absence of contract or enactment, whatever it is reasonable for the owner to do with his subsurface water, regard being had to the definite rights of others, he may do. He may make the most of it that he reasonably can. It is not unreasonable, so far as it is now apparent to us, that he should dig wells and take therefrom all the water that he needs in order to the fullest enjoyment and usefulness of his land as land, either for purposes of pleasure, abode, productiveness of soil, trade, manufacture, or for whatever else the land as land may serve. He may consume it, but must not discharge it to the injury of others. But to fit it up with wells and pumps of such pervasive and potential reach that from their base the defendant can tap the water stored in the plaintiff's land, and in all the region thereabout, and lead it to his own land, and by merchandising it prevent its return, is, however reasonable it may appear to the defendant and its customers, unreasonable as to the plaintiff and the others whose lands are thus clandestinely sapped, and their value impaired. (83) The New York Court of Appeals extended the holding in Forbell to a factually similar case in which the purpose of the pumping was to withdraw and market natural gas with the ancillary effect of also withdrawing and wasting unreasonably large quantities of water. (84)

While the common law cause of action for unreasonable exploitation of subsurface water is widely accepted, a pair of decisions from Pennsylvania and one from Ohio obscure the existence of the cause of action for unreasonable exploitation of oil and gas. (85) In Kelly v. Ohio, decided in 1897, the Ohio Supreme Court explicitly rejected causes of action for unreasonable exploitation of oil:

To drill an oil well near the line of one's land cannot interfere with the legal rights of the owner of the adjoining lands, so long as all operations are confined to the lands upon which the well is drilled. Whatever gets into the well belongs to the owner of the well, no matter where it came from. In such cases the well and its contents belong to the owner or lessee of the land, and no one can tell to a certainty from whence the oil, gas, or water which enters the well came, and no legal right as to the same can be established or enforced by an adjoining landowner. The right to drill and produce oil on one's own land is absolute, and cannot be supervised or controlled by a court or an adjoining landowner. ... [I]t is intolerable that the owner of real property, before making improvements on his own lands, should be compelled to submit to what his neighbor or a court of equity might regard as a reasonable use of his property. (86) This was consistent with the Ohio Supreme Court's unequivocal statement in a water case, Frazier v. Brown, in 1861 that "there are no correlative rights existing between the proprietors of adjoining lands." (87) But the court overruled Frazier "and all its progeny" in Cline v. American Aggregates Corp. after nearly a century. (88) Accordingly, Kelly v. Ohio Oil Co. may no longer be good law in Ohio as it is among the progeny of Frazier's rejection of "correlative rights existing between the proprietors of adjoining lands." (89)

In Jones v. Forest Oil Co. and Barnard v. Monongahela Natural Gas Co. the Pennsylvania Supreme Court issued per curiam affirmances of court of common pleas decisions rejecting challenges to unreasonable exploitation of oil and gas. (90)

In Jones v. Forest Oil Co., a landowner operating six oil wells sought and initially obtained an injunction against the use of a gas pump by Forest Oil at a well on the adjoining tract. (91) When Forest Oil began using the gas pump, production from three of the landowner's wells was reduced. (92) After the issuance of the initial injunction against the use of the gas pump, the production in the three wells increased to its former levels. (93) At the conclusion of a trial, the court of common pleas found that gas pumps are typically employed in "failing and almost exhausted territory," that "its use by one operator necessitates its use by others in the immediate neighborhood if they desire to prevent the daily production of their wells from being decreased," and that "if pumps are placed on all wells the production of the wells is neither increased nor diminished." (94) As to the circumstances of the field at issue in the case, the court of common pleas found that "gas pumps were in use" in the field by others for more than one year before the Forest Oil installed its gas pump and "that the production of the wells" in the field had "largely decreased" and was at the time "almost exhausted." (95)

In determining whether to issue a permanent injunction, the court of common pleas questioned "to what extent an owner of oil wells may use mechanical devices for bringing oil to the surface. In operating his own wells may he use appliances which diminish the production of his neighbor's wells?" (96) The court of common pleas concluded that "the use of a gas pump by [Forest Oil] under the circumstances of th[e] case [was] not an unlawful act that should be restrained by injunction" and accordingly dismissed the bill and dissolved the initially issued injunction. (97) The Pennsylvania Supreme Court affirmed per curiam. (98)

Despite the ultimate outcome, the decision of the court of common pleas suggests recognition of a cause of action for unreasonable exploitation. Not only did the case go to trial, the court issued a preliminary injunction against the use of the gas pump. The circumstances of the case referred to by the court are evidently the fact that the field depleted to a point such that it was reasonable for all owners to employ a gas pump. The case does not hold that using a gas pump or other methods of increasing the flow of gas in wells is always privileged and not subject to a requirement of reasonableness. Even if it did, as some suggest or imply, (99) its precedential and persuasive value for such a proposition is limited.

In Barnard v. Monongahela Natural Gas Co., Daniel and Elizabeth Barnard leased...

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